The UK’s economic woes make Gulf trade deal a priority

No 1 Grosvenor Crescent is a magnificent building on a desirable street in London’s West End, with views over posh Belgrave Square and a short walk from swanky Knightsbridge.

I have a feeling that members of Britain’s Labour government will be making their way to the cream-coloured mansion once they have returned from their party conference in Liverpool this week.

No 1 is the location of the embassy of the United Arab Emirates to the UK.

As the government of prime minister Sir Keir Starmer runs into turbulence, it will need the help of its Emirati friends and other allies in the Arabian Gulf as never before.

On a recent weekend trip to London, I found the city as charming and enjoyable as ever, but the political mood has changed radically from the heady days of early July, when Starmer won a landslide.

Then voters seemed very glad to be rid of a Conservative government that had become a byword for economic mismanagement as well as sleaze.

Just a few months later, Starmer’s administration is getting a reputation for the same kind of thing.

Negotiations on a UK trade deal with the GCC have been going on for several years but have yet to overcome several hurdles

The post-election honeymoon ended in scenes of chaos as anti-immigrant riots broke out in early August. Many of those convicted of violence have already been handed lengthy prison terms.

More recently, Labour has seemed determined to out-do the Conservatives with a series of revelations about accepting gifts from party supporters – including expensive clothes and hospitality at sporting events.

But it is in economic and financial policy where the most damaging issues have surfaced.

Labour was elected on a policy of investing for economic growth, but in late July it declared that it had found a £22 billon ($29.4 billion) “black hole” in the national finances left by the departing Tories. It said this justified a series of spending cuts, most controversially in some winter fuel allowances for pensioners.

Critics said the “discovery” was merely an excuse for a programme of fiscal austerity that will make growth very difficult to achieve.

In the run-up to an October budget statement, Starmer has warned that “things will get worse before they get better”, threatening the core policy of investment for economic growth – at least in the short term.

He appears to be paving the way for tax rises and more spending cuts – unpopular measures for any government but especially so for a Labour administration.

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Global investors, on the other hand, are likely to be impressed by a government that sticks to rigid financial discipline as it seeks to fix the UK’s longstanding economic problems.

This is where the UAE and other potential investors from the Gulf come in.

Total trade in goods and services between the UAE and UK amounted to £25.2 billion in the 12 months to the end of March 2024, according to the UK’s Department for Business & Trade.

The UK’s foreign direct investment in the UAE amounted to £5.2 billon in 2021, according to the same release. This was rather less than the FDI going the other way, which stood at £7.4 billion.

It is in the UK’s interest to expand that gap by encouraging more UAE investment in Britain. The UAE is the UK’s 18th-biggest trading partner, a disproportionate standing given that the Emirates’ economy is the 30th largest in the world in terms of GDP.

Which sectors the UAE may be persuaded to invest in is uncertain.

There is, of course, a lot of prime real estate that could attract dirhams to the more affluent parts of London, but that alone cannot be the answer to Labour’s investment needs.

UAE sovereign wealth funds such as Adia, Mubadala and Investment Corporation of Dubai are already big investors in the UK, with significant stakes in technology, renewables and healthcare and life sciences.

But a big increase in FDI from the UAE and the Gulf is probably dependent on a trade agreement between the two sides.

Negotiations on a UK trade deal with the Gulf Co-operation Council have been going on for several years but have yet to overcome several hurdles, including British insistence on safeguards for workers and on human rights.

There were talks between UK and Gulf negotiators on the sidelines of the Liverpool party conference, but if UK-GCC talks fail or drag on too long, it is likely individual countries in the Gulf, especially the UAE, will want to strike their own trade deals with Britain.

Whether such agreements will be enough to drag the UK out of its economic malaise remains to be seen.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE